Excess Profits Tax

DEFINITION of 'Excess Profits Tax'

A special tax that is assessed upon income beyond a specified amount, usually in excess of a deemed "normal" income. Excess profit taxes are primarily imposed on some businesses during a time of war or other emergency, or beyond a certain amount of return on invested capital. Excess profits taxes are designed to generate emergency revenue for the government in time of crisis. The tax itself is imposed on the difference between the amount of profit that a company generally earns during peacetime and the profits earned during times of war.

BREAKING DOWN 'Excess Profits Tax'

These taxes are also intended to prevent astute businessmen from reaping inordinate profits from increased wartime governmental and consumer spending. Excess profits taxes were levied during both world wars, as well as the Korean War. This tax is not popular with free-enterprise thinkers, who feel that it discourages necessary wartime productivity with its removal of the profit motive.

RELATED TERMS
  1. Income Tax

    A tax that governments impose on financial income generated by ...
  2. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  3. Taxes

    An involuntary fee levied on corporations or individuals that ...
  4. Direct Tax

    A tax that is paid directly by an individual or organization ...
  5. Accumulated Earnings Tax

    A tax imposed by the federal government upon companies with retained ...
  6. Tax Return

    1. The tax form or forms used to file income taxes with the Internal ...
Related Articles
  1. Taxes

    Paying Uncle Sam: From Tobacco To $1 Trillion

    The services we rely on, like education, law and security, were built on taxes.
  2. Professionals

    Types Of Taxes

    These taxes are unavoidable for corporations.
  3. Economics

    What is Profit Before Tax?

    Profit before tax measures a company’s profits before it pays corporate income tax.
  4. Taxes

    5 States Without Sales Tax

    Learn about the five states that do not charge sales taxes and about other taxes the states levy instead in order to generate revenue.
  5. Investing Basics

    Understanding the Capital Gains Tax

    A capital gains tax is imposed on the profits realized when an investor or corporation sells an asset for a higher price than its purchase price.
  6. Taxes

    Explaining Double Taxation

    Double taxation refers to income taxes being imposed twice on the same source of earned income.
  7. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  8. Taxes

    How Will Raising Taxes on the 1% Make a Difference?

    What would happen if taxes were raised (even by a small degree) on the highest earners?
  9. Economics

    Explaining Corporate Tax

    A corporate tax is a tax levied on the profits a corporation generates.
  10. Economics

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
RELATED FAQS
  1. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  2. What is the difference between income tax and capital gains tax?

    Understand the difference between a person's income tax and his capital gains tax. Learn when a person needs to pay taxes ... Read Answer >>
  3. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  4. Why does the IRS withhold income taxes from employee paychecks?

    In the midst of WWII, the U.S. government ran into trouble funding the war effort. The problem did not originate from citizens ... Read Answer >>
  5. How are effective tax rates calculated from income statements?

    Learn how to read an income statement and how to find the information necessary to calculate a company's effective income ... Read Answer >>
  6. Who first came up with the idea of a progressive tax?

    Learn how the progressive income tax system developed in the United States and became the federal government's primary revenue ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center